Biggest victory and loss of Estonia’s presidency

Liidukantsler Angela Merkel ja peaminister Jüri Ratas.

PHOTO: Virginia Mayo / AP / Scanpix

Entrepreneurs and employers regard amendment of the European Union’s so-called posted workers directive, praised as our EU presidency’s greatest achievement, as harmful for tiny Estonia as it hurts the country’s competitiveness and sends the message that Estonian companies are not welcome on the common market.

European Union labor ministers, headed by our own Minister of Healthcare and Labor Jevgeni Ossinovski, reached a compromise on whether and how to change the posted workers directive after 14 hours of deliberations on Monday night. It was agreed that equal work must merit equal pay in all member states.

What this means in short is that if an Estonian company gets a construction contract in Sweden and sends its men over, the contractor will have to observe all Swedish labor laws, pay local social tax, and compensate employees for expenses on food and transport after a period of 12 months.

There are no such restrictions today, and posted workers are subject to Estonian rules and social insurance tax.

The aim of the amendment was to put an end to unfair competition and “social dumping” as put by European Commissioner Marianne Thyssen. That aim was especially urgent for French President Emmanuel Macron who managed to include his items in the directive.

Ossinovski said he believes a balanced compromise was found. “We have very strong support for the agreement,” he said.

Estonia no longer welcome

Even though politicians and officials applauded the agreement, matters might not be as rosy from the point of view of Estonian entrepreneurs as the amendment makes Estonian labor more expensive that in turn jeopardizes the competitive and export ability of companies.

That is the position of employers’ representative Toomas Tamsar who says that the agreement reached on Ossinovski’s watch is not a good fit for Estonia. Tamsar describes the amendment as a protectionist move steamrolled into being by Western Europe the aim of which is to protect the domestic markets of countries there.

“The European Union has agreed on the free movement of services, while this step surely restricts that movement. There is talk of solidarity, while the real message is that we don’t want you here if you’re too cheap,” Tamsar said. He added that bigger expenses are one problem, while increased red tape is another.

Tamsar gave the example of France that has been one of the advocates of the amendment. An Estonian company offering services in France will have to observe French labor laws “that are not measured in sections, but kilos as their labor acts are just so substantial”.

“The way is simply shut for foreign companies, including Estonian ones,” Tamsar said. He said the matter concerns a few thousand Estonian workers abroad.

Therefore, Tamsar believes the directive will hurt Estonia’s export capacity in a situation where export is the only thing bringing in money. “While the effect of this directive will not ruin the Estonian economy, it will affect companies active on other markets,” the employers’ representative said.

As concerns employees sent to Estonia from other countries, foreign employers will have an easier time as our labor laws aren’t as complicated as their alternatives in the West, Tamsar said. “The effects are not considerable for us as no construction workers come here from Western Europe,” he added.

Member of the board of one of Estonia’s largest construction companies Nordecon, Priit Luman, agreed with Tamsar as he found the amendment will rather harm Estonian companies and makes it more difficult to sell services on our main foreign markets.

The amendment will not affect Nordecon to any notable degree as it is active on the Swedish market through a local general contracting company and workers are not posted as such. This means that the firm’s workers are employed by local company Swencn AB and all contracts and conditions already correspond to Swedish rules and regulations.

Former finance minister, the Reform Party’s Maris Lauri said that it is already difficult for unknown Estonian brands to break through to wealthier markets, which is why Estonia cannot afford to lose the advantage of price. The directive might make it more expedient for companies to hire local workers. “This hurts Estonians’ chances of finding work,” Lauri explained.

Defense against cheap Poles

One of the owners of Estonia’s leading wooden buildings manufacturer Harmet OÜ, Toomas Kalev, found that a leveling of labor market rules could benefit the company as Estonia has stopped being a cheap labor country that employers regard as one of our competitive advantages.

The company exports the lion’s share of its modular houses to Sweden. Kalev said that Polish builders are offering stiff competition and are making far cheaper offers.

“Looking at the directive in this light, the amendment even benefits us as it clears and organizes the market. Those who bet on price alone will be swept aside. And it does not have to be us alone,” Kalev explained. He said that consumers are willing to pay more for quality products.

As concerns equal conditions for posted workers compared to locals, Kalev believes Harmet will have to find a combined solution in the future. This means that a part of employees, executives and project managers, will remain in the target country and will be paid that country’s salary. Another part would be sent abroad for shorter periods of time when it is necessary to assemble houses for clients.

“Our advantage, that of manufacturers of timber houses, over general construction companies is that we can finish 90 percent of the modular house in Estonia and must only do 10 percent abroad,” Kalev explained.

Because EU ministers agreed that posted workers would be subject to local laws 12 months after arrival, Harmet can escape additional expenses by assembling its buildings in a shorter time.

“In that sense we were prepared for this kind of unification. It is another matter that there aren’t any major differences between the tax systems of Estonia and Sweden anymore anyway,” Kalev said.